econ 202 ch. 4, Microeconomics Exam #1

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a permanent shortage when the supply is purposely kept below equilibrium

ceiling price

an economy in which the government is directly involved

command

2 types of economies

command, free market

this theory states that specialization and free trade benefit all trading parties

comparative advantage

when 1 producer can produce more at a lower opportunity cost than another producer

comparative advantage

an example of an ineffective price ceiling would be the government setting the price of wheat at ___ per bushel when the market price is at $5.00 per bushel

$6.00

4 functions of an economic system

1. determie variety and quantities of outputs to produce 2. determine best uses of inputs to product outputs 3. determine how much of each output each individual receives 4. determine growth of outputs

an example of a price ceiling would be the government setting the price of sugar

below the equilibrium market price

price ceiling

a maximum price that sellers may charge for a good, usually set by government

price floor

a minimum price below which exchange is not permitted

if the equilibrium price of gasoline is $4.00 per gallon and the government will not allow oil companies to charge more than $3.00 per gallon of gasoline, which of the following will happen?

a nonprice rationing system such as ration coupons must be used to ration the available supply of gasoline

when 1 producer can produce more using fewer resources than another producer

absolute advantage

what is the most important factor in economic production?

access to capital goods

the total loss of producer and consumer surplus from underproduction or overproduction is:

deadweight loss

the rent for apartments in new york city has been rising sharply. demand for apartments in new york city has been rising sharply as well. this is hard to explain because the law of demand says that higher prices should lead to lower demand. do you agree or disagree?

disagree: an increase in demand would result in a higher equilibrium price. therefore, a sharp increase in the demand for apartments in new york city is entirely consistent with a sharp increase in rent.

occurs when quantity demanded = quantity supplied

equilibrium

occurs when there's a surplus (i.e. minimum wage)

floor price

an economy without government involvement

free market

what are the outputs in production?

goods and services

in this concept, everyone is pursuing his/her own interests. firms don't care about consumers' happiness, just profit. consumers don't care about firms, they just want satisfaction.

invisible hand

producer surplus:

is the difference between the current market price and the cost of production for the firm

consumer surplus:

is the difference between the maximum amount a person is willing to pay for a good and its current market price

what are the inputs in production?

land, labor, capital

states that a change in price will change the quantity demanded

law of demand

analyzing the additional costs/benefits arising from a decision

marginalism

set of interacting buyers and sellers who, through their voluntary interactions, determine the prices of products and the quantities which are sold

market

type of economics that is based on values and subjective

normative

companies will specialize in outputs with the smallest _

opportunity cost

the benefit you'd sacrifice by not using a product

opportunity cost

type of economics that is value free and objective

positive

2 types of economics

positive, normative

what are the 5 exogenous variables on the market?

preferences, income, number of buyers, prices of related goods, expected future changes in price

5 factors causing a change in demand

preferences, income, prices of related goods, number of buyers, expected future change in price

a resource is scare if it has a _

price

the adjustment of ___ is the rationing mechanism in market economies

price

a minimum price, set by the government, that sellers may charge for a good is known as

price floor

what are the 2 endogenous variables on the market?

price, quantity

2 types of changes (innovations) in technology

product, process

this graph shows all the combinations of goods/services that can be produced if all resources are used efficiently

production possibilities curve

when a price ceiling is imposed, the price system is prohibited from rationing the product in the market in which the ceiling was imposed. what other alternative rationing methods are available to determine who receives the scarce commodity?

queuing, favoring customers, and ration coupons

what is the consumer's objective?

satisfaction

3 determinants of supply

technology, input prices, number of sellers

if the price floor is set below the equilibrium price:

the floor will be ineffective

if the price ceiling is set below the equilibrium price:

there will be a shortage

if the market price of coffee is $3.00 per pound but the government will not allow coffee growers to charge more than $2.00 per pound of coffee, which of the following will happen?

there will be a shortage of coffee

if the price floor is set above the equilibrium price:

there will be a surplus

if the government imposes a maximum price that is above the equilibrium price,

this maximum price will have no economic impact

the measure of how happy the customer will be

total utility

among the methods of nonprice rationing are:

waiting in line, coupons, favored customers

people scalping tickets for a jazz festival will be successful at selling the tickets for a profit

when the price set by the festival organizers is less than the market equilibrium price

people scalping tickets for the super bowl will be successful at selling the tickets for a profit

when the price set by the national football league is less than the market equilibrium price


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